Sticky Situation--another grey area?

[DianneDachyshyn]

We own a condo and we are on the Board. Another Board member approached us about doing a JV deal. There has been a lot of trouble in this complex this past year due to poor management by the previous Board and there has been much fear mongering about a huge special assessment. Now that we are on the Board, cooler and wiser heads have been working toward a more inexpensive solution to the structural issues. We are in the middle of working it out.

A listing came up in the same complex and the owners have slashed the price to a ridiculous amount saying that the buyer must take the unit "as is" because there is a huge special assessment coming.

Now, what do we do about this? We would love to buy the place because it is an excellent rental property. Should we approach the owner as Board members and tell them that they are making a huge mistake? Should we buy it before someone else comes along? If it does sell at this price (about $100,000 under market value), what will it do to the property values of the rest of our units? If we do buy it, how do we handle the special assessment, which will likely come around early next year? Do we split the cost between partners at that time (she is the money partner), or do we work it into the price now, since we know it`s coming?

 

[RedlineBrett]

Very interesting situation indeed.

As a board member I think you have a duty to inform the seller that the clouds aren`t as dark as they seem, and that you believe the assessment won`t be as bad as originally feared. You should start with this.

Now after that I would mention to him that you have confidence in the building but if he has had enough of being an owner there you will happily buy the unit from him privately, but you don`t want to hurt the values of every other unit by showing a sale with such a low price.

Ask him, as a courtesy to other owners, to have his agent terminate the listing. Pay him his price on a private deal so he can settle with his agent and then everyone is a winner!

QUOTE (DianneDachyshyn @ Jul 21 2008, 06:11 AM) We own a condo and we are on the Board. Another Board member approached us about doing a JV deal. There has been a lot of trouble in this complex this past year due to poor management by the previous Board and there has been much fear mongering about a huge special assessment. Now that we are on the Board, cooler and wiser heads have been working toward a more inexpensive solution to the structural issues. We are in the middle of working it out.

A listing came up in the same complex and the owners have slashed the price to a ridiculous amount saying that the buyer must take the unit "as is" because there is a huge special assessment coming.

Now, what do we do about this? We would love to buy the place because it is an excellent rental property. Should we approach the owner as Board members and tell them that they are making a huge mistake? Should we buy it before someone else comes along? If it does sell at this price (about $100,000 under market value), what will it do to the property values of the rest of our units? If we do buy it, how do we handle the special assessment, which will likely come around early next year? Do we split the cost between partners at that time (she is the money partner), or do we work it into the price now, since we know it`s coming?

 

[DianneDachyshyn]

Thanks, Brett. We thought of that as well. I have another question regarding this matter. If the seller takes the listing off the market, does he have to wait to sell it? Is there something in the realtor contract that limits him from selling it privately?

 

[DianneDachyshyn]

There still remains the question about the upcoming special assessment. Do we write that into the price or split it later? Even if we add the amount to the asking price, it will be a good deal, but we weren`t planning on putting cash into a purchase at this time. That`s why we`re working with a JV partner. The assessment could end up costing us $10,000-$20,000, and we aren`t sure that`s what we want to be doing at this time. Is there a way to write the deal so that the downpayment and mortgage cover the upcoming assessment?

 

[RedlineBrett]

This all depends on the terms of the listing agreement he signed. Everyone is a little bit different because every seller has unique neads. If no special terms are included then yes, if the seller sells his property within 90 days of the expiration of the agreement to anybody then the listing brokerage is due compensation.

Now, what you want to do hear is a good thing and the listing agent will have a chance to make a full commission and do it quickly. If there is one thing you can count on it is that agents will find a way to get paid

If the seller explains his intentions to fully pay out the listing agent then the agent will just have him sign a conditional termination agreement whereby the agent is to be paid $x for letting the seller out of the contract. Obviously your seller should have a conditional agreement with you where he has a sellers condition to walk if his agent won`t let him out of the deal.



QUOTE (DianneDachyshyn @ Jul 21 2008, 08:01 AM) Thanks, Brett. We thought of that as well. I have another question regarding this matter. If the seller takes the listing off the market, does he have to wait to sell it? Is there something in the realtor contract that limits him from selling it privately?

 

[DianneDachyshyn]

Thanks, Brett. Your advice is much appreciated, as usual!

 

[RedlineBrett]

You could try and put it in as a higher purchase price with a term that there will be cash back to the buyer at closing to pay a special assessment and see if the bank goes for it. If you are buying at such a deep discount and you have documentation to validate the upcoming assessment I bet this would work. If you are straight up with the bank and even offer to leave this $$ in the lawyers trust account until the assessment is paid it will help to convey your honest intentions for the cash-back.

There are also lots of different financing packages out there. You might be able to put less down than you originally planned, eat the insurance fee and then pay the assessment with the remaining balance of capital your partner was going to bring to the table.

QUOTE (DianneDachyshyn @ Jul 21 2008, 08:06 AM) There still remains the question about the upcoming special assessment. Do we write that into the price or split it later? Even if we add the amount to the asking price, it will be a good deal, but we weren`t planning on putting cash into a purchase at this time. That`s why we`re working with a JV partner. The assessment could end up costing us $10,000-$20,000, and we aren`t sure that`s what we want to be doing at this time. Is there a way to write the deal so that the downpayment and mortgage cover the upcoming assessment?

 

[GarthChapman]

If you are on the Board it probably means you have some fiduciary obligations to the other owners. You may be in a conflict of interest position between your obligations as a Board member and your intentions as an investor - kind of like `insider trading` in the stock market. So make sure at least that you disclose all you know to the Seller. You really should check this out with your lawyer. If you buy the unit improperly you could be liable for damages to the Seller and to any other owners who might argue that your actions reduced the value of their condo units.

Hope that helps,